On August 19, AMD (AMD-US) announced a major strategic move to acquire server maker ZT Systems for $4.9 billion, a move aimed at expanding its line of artificial intelligence (AI) chips and hardware to better compete with industry leader Nvidia (NVDA-US).

Under the terms of the agreement, AMD will pay 75 percent of ZT Systems' equity in cash and the remainder in stock. At the end of the second quarter, AMD's cash and short-term investments totaled $5.34 billion.

As the demand for AI computing grows, technology companies need to integrate thousands of chips together to achieve the required data processing power. This trend makes the overall design of server Systems critical, which is the main reason AMD chose to acquire ZT Systems.

In an interview with Reuters, AMD Chief Executive Lisa Su said: "AI systems are a strategic priority for us right now." She further explained that by bringing in a team of engineers from ZT Systems, AMD will be able to more quickly test and roll out the latest AI graphics processing units (Gpus) to meet the needs of large cloud service providers like Microsoft (MSFT-US).

At the same time, Su Zifong revealed that AMD plans to spin off its server manufacturing unit after the deal is completed and look for a suitable buyer to sell, because AMD does not intend to directly compete with competitors such as Super Micro Computer (SMCI-US).

At this time, AMD has not begun talks with any potential buyers.

Frank Zhang, CEO of ZT Systems, will join AMD after the transaction closes and will report to Forrest Norrod, head of AMD's data center business.

ZT Systems is a privately held company with approximately 2,500 employees, of which approximately 1,000 engineers will be brought under AMD's aegis. According to Su, ZT Systems' current annual revenue is about $10 billion.

The acquisition is expected to close in the first half of 2025, while the divestiture of the server manufacturing business could take an additional 12 to 18 months.

Su Zifeng has previously said that AMD expects AI chip revenue to reach about $4.5 billion this year. The company's major customers include Microsoft and META Platforms (Meta-US).

AMD expects ZT Systems to have a positive impact on the company's non-GAAP revenue by the end of 2025.

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